Tax Brake with Robert G. Nath, Esq.

It seems the taxpayers' son was in college, and his parents could claim him as a dependent, but did not. So Son filed singly, but claimed a personal exemption of zero and a tax credit based on a Hope Scholarship. The IRS' Service Center denied the credit, suggesting Son be claimed by parents on their return.

The exemption rules of Section 152 of the Internal Revenue Code provide that the "exemption amount" for an individual is zero if that person is one with respect to whom the exemption is "allowable" to another taxpayer. Therefore, in this case, the son's exemption was zero because the exemption was "allowable" to his parents, since they fulfilled all the support tests. For this and numerous other provisions, the rule is harsh: If you don't take the tax break, but are entitled to it, you could lose it. In this case the parents could NOT take the exemption because their income was too high. That did not matter, said the IRS, it was still "allowable."

While that reasoning may seem somewhat strained, it actually helped. ALL was not lost. The IRS' national office helped Son out. Since by definition his exemption amount was "zero," that made Son eligible for a tax credit for the Hope Scholarship (and Lifetime Learning).

The IRS therefore ruled that Son could take this credit. That's because the law says the deductions (for qualified educational expenses) are "allowed" if you claimed them on the tax return, regardless of whether they actually produced a tax benefit.

So parents could not benefit from the exemption; but Son COULD benefit from claiming education credits on his own return. All in all, a nice result.